Small Caps | Mar 27 2018
This story features AUDINATE GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: AD8
Momentum in Audinate's business is accelerating as original equipment manufacturers recognise the benefits of its AV networking technology.
-Plans to extend Dante across OEM products and add OEM partners
-Dante enables OEMs to fast track product development
-New products to increase market opportunity
By Eva Brocklehurst
There is a structural shift in the way audio systems are designed, built and used in the professional industry and Audinate ((AD8)) has ambitions to make its Dante platform the industry standard across original equipment manufacturers (OEM).
The company, which provides professional digital AV network technologies, uses its Dante platform to distribute digital signals over computer networks.
Second quarter results impressed Shaw and Partners and FY18 estimates for sales are upgraded by 6% to $19.7m, which suggests a possible breaking even of operating earnings (EBITDA) in FY18. The broker expects higher revenue growth from 2019-22, which results in an increase in the target to $3.20 from $2.20. Shaw and Partners has a Buy rating.
The broker believes momentum is clearly growing quarter of-on-quarter as the Dante ecosystem extends to legacy equipment (analogue). Dante is designed to bring the benefits of IT to the professional AV industry that is largely distributing via legacy point-to-point analogue technology.
Around 392 OEM partners license the technology including tier 1 manufacturers such as Bosch, Bose, Harman, Symetrix, Roland, Sony and Yamaha (which is a 10% shareholder). The company estimates there are over 2000 professional audiovisual OEMs with a total addressable market of over $400m per annum.
Only 50% of the company's partner OEMs have launched Dante-enabled products which provides an indication of the potential revenue growth over the medium term. The company intends to increase both the number of OEMs adopting the technology and extending Dante across an OEM product portfolio.
The Dante platform enables OEMs to fast track product development and offers a simple routing and network monitoring platform. Ease-of-use and interoperability are the key competitive advantages.
Audinate stock may not be cheap but, as Canaccord Genuity asserts, quality rarely is. The company is the industry leader with over 80% of market share and has an elevated historical growth rate, coupled with high gross profit margins of around 75%. This reflects the strength of the company's IP and barriers to entry, in the broker's opinion.
New products such as adapters, video networking and software solutions should increase the overall market opportunity and add new growth to the business. Canaccord Genuity initiates coverage with a Speculative Buy rating and target is $3.45.
Shaw and Partners believes Audinate should be included with the "A-Team" of Australian tech companies such as Aconex, Altium ((ALU)), and Atlassian, given its significant addressable market and position as a global standard in digital audio networking.
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